Early History
In the early 1960s, the government of South Korea initiated a new economic plan requiring the chaebols, or conglomerates, to concentrate on increasing production for export. A series of five year plans laid out the policy for decreasing the trade deficit of South Korea while strengthening domestic production. This was a plan which had already been utilized successfully y both Hong Kong and Taiwan, South Korea's Far East competitors. Daewoo had a key part in this effort to enhance the significance of South Korea's exports.
The government of South Korea sponsored cheap loans for chaebols manufacturing products for export. Daewoo benefited from the loans when it began trading in the year 1967. This was at the beginning of the second five-year plan. The corporation Daewoo capitalized on the nation's huge labor force, its primary asset. By concentrating on labour-intensive businesses, such as textile and clothing, the business yielded high profits. The factory of the company in Pusan produced 3.6 million shirts every month. The company also made basic manufacturing equipment, which were labour intensive too. In this time, Daewoo helped to increase the level of South Korea's exports, that were growing almost 40% per year.
Korea's comparative advantage in labor-intensive production began to decline, when the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, that forced the nation to concentrate on the businesses of petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This particular phase of the nation's economic recovery lasted from the year 1973 to the year 1981. This took place at the same time as the United States announced its plans to completely withdraw its peacekeeping forces from the nation. The new emphasis in production was intended to further expand Korea's exports while simultaneously making components which previously had to be imported. Local parts production helped to strengthen domestic industries and make possible a national defense industry.